Manufacturing Sector Indonesia Absorbs 16.3 Million Workers

Indonesia's manufacturing sector is targeted to provide employment to a total of 16.3 million workers in 2017, up 5 percent from 15.5 million workers in the preceding year. As such, development of the manufacturing industry is a good strategy to reduce Indonesia's unemployment rate. Industries within the manufacturing sector of Indonesia that absorb the highest number of workers are the textile, footwear, food & beverage, and automotive industries.

Haris Munandar, official at Indonesia's Industry Ministry, emphasizes the need for local workers to be skilled and competent in order to make the nation's manufacturing sector more competitive and innovative. To boost the skills of Indonesian workers, the Industry Ministry will offer education and training through cooperation with the country's Chamber of Commerce and the various industry associations as well as the Ministry of Manpower and Transmigration and the Ministry of Education and Culture.

The Industry Ministry also plans to establish eight polytechnics up to 2019 for workers in the rubber, steel, and palm oil industry. Munandar is content to see that nearly 60 percent of Indonesian workers in the manufacturing industry currently already have a certificate that confirms their skills. He added that the government will continue its efforts to boost Indonesian workers' expertise. This is particularly important to entice foreign investment. For foreign investors it is vital to have professional (or skilled) local workers. Without skilled workers, the foreign investor prefers to set up his manufacturing plant in another country.

However, although investment in Indonesia's manufacturing sector is dominated by foreign direct investment (FDI), this FDI is capital-intensive but not so much labor-intensive. To attract foreign investment in the labor-intensive manufacturing sectors, the Indonesian government is advised to improve the investment climate by accurately implementing the policy packages (that have been released since September 2015), create a conducive electricity sector (to safeguard a sufficient supply of electricity to manufacturing companies) and boost infrastructure development to reduce logistics costs.

Contribution Manufacturing Industry to Indonesian GDP:

Year

Contribution

2009

26.35%

2010

24.79%

2011

24.32%

2012

23.97%

2013

21.03%

2014

21.07%

2015

20.97%

2016

20.51%

Source: BPS

According to data from Indonesia's Statistics Agency (BPS), the agriculture sector absorbs most workers in Indonesia (37.8 million people), followed by the trade sector (26.7 million), the services sector (19.5 million) and the manufacturing sector (15.5 million). Indonesia's total workforce numbers 118.4 million people.

In 2006 Indonesia's manufacturing sector provided employment to 11.9 million people, implying that over the past decade about 400,000 workers were added to this sector, each year. However, this sector would absorb more people if the manufacturing sector of Indonesia would expand at a faster rate (and particularly investment flows to the labor-intensive industries within the manufacturing sector). Meanwhile, over the same decade the manufacturing sector's contribution toward Indonesia's gross domestic product (GDP) declined from 28.0 percent to 20.8 percent (ideally, the manufacturing sector accounts for at least 35 percent of GDP). Problematically, expansion of the manufacturing sector tends to be below Indonesia's overall macroeconomic growth.